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The Israeli economy is likely to continue to grow at a moderate pace, while the strong growth of mortgage debt and the rise of housing prices pose risks. Meanwhile, a new round of peace talks with the Palestinians is not obvious under a new government that is dominated by nationalists and ultra-Orthodox parties.

The Israeli economy is likely to continue to grow at a moderate pace, while the rising mortgage debt and housing prices pose risks. Meanwhile, the latest round of peace talks with the Palestinians collapsed in late April.

Economic growth in Israel is expected to slow in 2013 but pick up in 2014 as gas output increases. The new government has an opportunity to push through reforms. Tensions with Syria and Iran will continue in the forecast period.

Israel’s modern, high-tech, open and service based economy is expected to slow from 4.8% in 2011 to 2% in 2012. Contagion from the Arab Spring hit Israel when massive street protests ensued in July 2011, and social unrest could flare up again.

It's a compelling tale. With wave after wave of protests sweeping through country after country, the Middle East and North Africa (MENA) finally appear ready for a democratic, peaceful future. The truth is – obviously – more complicated.

Israel’s small but technologically advanced free-market economy, located in an important and geopolitically high risk region, was and still is doing remarkably well. The short-term outlook is also encouraging.